Tuesday, September 12, 2017

In its Un-carrier X, Netflix on Us, T-Mobile needled AT&T. They cited in their conference call that AT&T Unlimited Plus customers were the only ones who received HBO for free or one had to buy it throw the over the top DirecTV Now service. This obviously brought up the disparity in how AT&T treats their unlimited customers.

AT&T Unlimited Choice users are probably more price sensitive as there is a $30 price gap in a single line vs. the Plus variety. Moreover, video is SD vs. HD (Stream Saver) and downlink throughput is capped at 3 Mbps, slower than Cricket's 8 Mbps (don't get me started on this). Now AT&T has chosen and (to me) in a reactive fashion to Netflix on Us now allows Choice users to get freebie HBO channel streaming (Game of Thrones season is over, right?). Another silver lining to those Choice users who may have DirecTV or DirecTV Now is that they save the HBO monthly fee ($5?).

Clearly, comparing HBO to Netflix is not an apples-to-apples comparison as there is a greater content library behind Netflix. Still, it reduces and blunts any marketing messaging that T-Mobile may have in the works at retail. Will HBO necessarily stop the T-Mobile customer acquisition train? That is unlikely but it is a reactive anti-churn move that AT&T had to eventually implement as Q4 selling starts.

Tuesday, May 2, 2017

The wireless path for all wireless carriers beyond LTE is 5G. Everyone in the industry knows this. Conventionally, the spectrum associated with 5G talk has been in the millimeter wave (mmW) realm. That's why Verizon purchased XO because they had 28 and 39 GHz. That also can be said with AT&T's purchase of FiberTower (24 and 39 GHz) and its interest in StraightPath (28 & 39 GHz). There are many on-going trials on the vendor side and carrier side as well in mmW bands. The width of the mmW spectrum availability is in the order of hundreds of GHz rather than the tens of MHz in each that carriers have today.

While 5G is the front and center of the announcement, what is lost is that T-Mobile seeks to use some of that spectrum for LTE deployment. In the 1Q17 earnings call, Neville Ray (CTO) touted that the company wanted to put the spectrum to use quickly, with buildout ready by end of year 2017 along with handset support (Samsung & another vendor). Two points that T-Mobile have shrugged off:

1) The spectrum needs to be cleared. T-Mobile's initial 600 buildout will be where there are no clearance issues. It's also the geography where their 700 doesn't cover, so apparently it's a win. The implication is that it's closing the coverage holes and getting to network and geographic parity with AT&T and Verizon, negating the "Verizon map" marketing advantage.

2) 600 ecosystem cost and support is costly. It's clear that T-Mobile will be the first mover in 600 LTE and they painted similarities to delving into AWS spectrum. They claim it's no different. However, T-Mobile's modus operandi is and has always been pushing the technical and marketing envelope. It has a good track record.

So the conventional playbook says that 600 will bring geographic and network parity against AT&T and Verizon. More importantly, it will expand T-Mobile's sales and distribution footprint to greenfield markets traditionally served by AT&T and Verizon because they were the only game in town.

BACK TO 5G

To T-Mobile's credit, they're not ahead of the market as they anticipate buildout in 2019 with commercial service ready in 2020 along with a national footprint. This is not aggressive but along the conventional standards and industry timeline. Again, what is unconventional is its use of 600 MHz, unexpected in many tech circles.

The problem with this and conventional 5G talk is from a speed perspective is that it won't make the multi-Gbps targets as so many trials have demonstrated. Moreover, 31 MHz is going to be divided with its earlier 600 LTE implementation. This 5G implementation will likely pick up more spectral efficiency in delivering speed relative to LTE but again, as standalone 5G, the operating bandwidth is limited. So what's the play? There are two for now.
1) In a conference call with industry analysts, Neville and his network execs talked up rural IoT. The argument goes that standard 5G mmW IoT is limited by the spectrum and really a play in urban areas due to the propagation characteristics. While it's out of character with over three years of direct consumer wins, this feels more like a business play. To be sure, T-Mobile has kicked off its IoT effort in January 2017 and it shouldn't end with 3G and LTE (NB). IoT connected numbers in the billions and every carrier wants a piece of the pie. With low or no per unit acquisition costs along with sustained recurring revenue, each connection has an excellent (industry term) customer lifetime value. The money potential will preset itself in 2020 and beyond but for now, the announcement gives T-Mobile business and IoT force some roadmap to present compared to AT&T and Verizon, which have a substantial lead.

2) T-Mobile's 2020 national 5G network target is a pure marketing win. Again with conventional 5G talk with mmW, this conventional implementation will not have a 5G national footprint. While that is true, competitors can claim greater 5G speed compared to T-Mobile's 600 5G speeds. The only caveat is that T-Mobile is likely going into mmW 5G as well. So looking ahead, another related component will be the ongoing mmW spectrum acquisition race.

In closing, all the industry talk, other spectrum bands are likely to be refarmed into 5G. I'm counting on Sprint to announce its 5G foray using its 2.5 GHz resources soon.

Verizon has been the brunt of switching aggression from
T-Mobile and most recently Sprint. With the largest postpaid base among the top
four carriers, Verizon is the low hanging fruit. And with continued high
porting ratios reported by T-Mobile and movement from Sprint, Verizon had to do
something.Moreover, it lacked an
unlimited plan that T-Mobile and Sprint harped on in its advertising to win
over Verizon customers.Its large postpaid
base and reluctance to offer an unlimited product also raised questions,
particularly in the investor community, on whether its venerated network could
even handle increasing data traffic within its current spectrum portfolio.

With a dire competition picture for many quarters and the
messaging set in place by former CFO Fran Shammo that subscribers don’t want or
don’t need unlimited coupled to preserving good margin, a Verizon unlimited
offering is surprising. However, Mr. Shammo has retired and a new CFO Matt
Ellis and the new UK-transplant CEO (Ronan Dunne – ex O2 CEO) may have been the
impetus to changing Verizon’s unlimited strategy.Rather than Lowell McAdam’s face (or John
Stratton’s or any other long time Verizon executive) to introduce the unlimited
plan, it was Mr. Dunne and Nicky Palmer (Network Leader (read network CTO) as
fresh PR faces.

ANALYSIS

WHAT’S IN IT FOR VERIZON?

Retention
(Stopping the Bleeding): The port outs to T-Mobile and Sprint have impacted
Verizon’s bread and butter postpaid sub base.A new unlimited offering will placate those legacy/grandfathered
subscribers who feel pushed out with increasing onerous conditions to keep
their grandfathered unlimited plans. Moreover, with a valuable business segment
that may want monthly price predictability without data pooling, an unlimited
plan will lock in loyal accounts.

Switching
(and switching back): The free smartphone offer is attractive for former
Verizon customers who left for competitors within the last 2 years (e.g., for
trade-in, the iPhone 6 is a little over 2 years old).Against T-Mobile, the advertised gap is only
$20 (though T-Mobile One is tax/fee inclusive). $20 may be enough for less
price sensitive customers and Verizon loyalists to return.

Network
Reputation:Verizon has always done
well with the ‘map’ that shows its national coverage lead but T-Mobile has been
very vocal specifically about its network parity (covered LTE POPs) and faster
download data throughput against Verizon’s premium network message.By offering an unlimited product and
highlighting leadership in small cells and sprinkling in leading edge LTE
technology, Verizon is stating that its network can handle the network
traffic.Not to be forgotten is the delayed
LTE-U (or LAA) impending commercialization likely in 2017 that will help the
load.

Feature Differentiation:
Unlike the Verizon of old where customers need to pay extra to turn their
phones into a mobile Wi-Fi hotspot, a healthy 10GB is included. Against
T-Mobile or Sprint, this isn’t much but against AT&T, it stands out.A nuanced jab at T-Mobile is that video may
be streamed in native HD against T-Mobile’s extra fee to get HD capability.

Cost
Containment: The new unlimited plan has two caveats – electronic billing
and autopay.These features are very
much prepaid in nature and in a macro sense, speaks to cost savings of
generating paper bills. Automating the payment process streamlines any handling
for paper checks as well as in-store bill payment handling. As in prepaid,
autopay is a nice anti-churn measure.

COMPETITOR COMPANIES' IMPACT?

Sprint: Price leadership has been Sprint’s
hallmark for a year or so.This has been
their strategy to turn itself around from negative losses to positive net
addition growth.The surprising Sprint promotion announced a day ahead of Verizon’s announcement (5 lines of unlimited service
for $90) makes a lot of sense now.Keeping a lid on price moves is difficult in this industry and the
coincidence of Sprint’s promotion suggests to me that they got wind of Verizon’s
offering ahead of time.Sprint will still get the price
seekers but may be blunted somewhat for those Verizon loyalists that haven’t
been pulled the trigger to the Sprint camp.With the new Sprint promotion, I’d expect that a marketing campaign be
launch pointing out that Sprint’s unlimited is half that of Verizon’s.

With thinner margins, Sprint’s financial
challenge is cannibalizing revenue from the existing base that wants this less
expensive offer.Yet the other side of
the coin is that they could lock these migrating plan customers in for another
two years.

T-Mobile: While I characterize Sprint as the
price leader, T-Mobile is, in my view, the value carrier and the biggest continued
threat to Verizon.With an effective
network parity message and an expanding national LTE footprint, the number
three carrier has so much momentum that Verizon will find it difficult to fully
stop T-Mobile. Given a public target to increase national distribution doors (in areas
where it never operated) in 2017, I believe Verizon will continue to be
negatively affected but perhaps slightly diminished porting.

AT&T: With only an unlimited plan only available as
a bundle with DirecTV, AT&T is the odd man out amongst its peer group without
a standalone product in its plan portfolio.AT&T’s strategy has always been to cross and upsell to increase
revenue from its existing base, and in turn bring higher margins (EBITDA
service margin, in the Verizon range). To
veer from this strategy will be tough as it has garnered quite a bit of criticism
with quarterly phone customer losses.Though AT&T claims many of those
phone losses are feature phone customers, Verizon has been its longtime nemesis
as both carriers contend for the premium customer, consumer and business. History has shown that it responds almost tit
for tat against Verizon and have largely ignored plan moves from Sprint and
T-Mobile. However, there must be a lot
of debate happening in Atlanta and Dallas on the course forward. My view is that AT&T must
respond and improve on its unlimited offering as it is the most vulnerable. Though the wireless-DirecTV unlimited
wireless offer sets the same price point for 4 lines at $180, there’s fine
print. First, month one and two are at $220 and only at month three is the 4th
line considered free. More importantly,
after line 4, additional lines are at $40/month, clearly short of Verizon’s (and
T-Mobile’s) $20/month. If not to save the premium consumer base that has been slipping for several quarters, AT&T needs an offer to its coveted medium and enterprise business segment that has been fueling sub growth and offsetting those consumer losses.